In the last section, we discussed the importance and some documentation that would be needed with the submission of pay stubs and Bank Statements for a first time Conventional mortgage. In this section, we will go a bit more into some additional asset documentation as well as credit documentation that will need to be provided by borrower looking to purchase their first home.
For acceptable asset documentation, the first time home buyer can bring in 401K, retirement and/or IRA funds for closing to show reserves. The underwriter for the lender will require the first time home buyer to provide the official most recent statement for these accounts, which shows any withdrawals and contributions as well as the vested balance. The other requirement for the first time borrower will be the terms and conditions. This document, which is usually labeled “Plan Summary” will outline all of the information in regards to taking a loan or withdrawing from the 401K account. Most first time borrowers may not even use the 401K to show funds for closing, but for reserves. In other words, the first time borrower just wants to show the underwriter that in case of hardship they will have a few months of reserves for paying the mortgage. By having these documents ready beforehand, the first time home buyer can send in a complete package with the assets mentioned in the previous update. Just as a reminder, the first time home buyer needs to provide the most recent official statement available, which may be quarterly or even annually.
As with other programs, the lender will wish to see the credit history and current credit score of the borrower looking to purchase their first home through the Conventional loan program. The credit of the first time home buyer is pulled for many reasons, such as seeing if there are any recent debts, any new credit lines, and inquiries from other mortgage companies for the first time borrower. For the Conventional loan program, as well as other loan programs, the credit score must be above a certain requirement and all debt-to-income must be documented. If a borrower has inquiries within the last 120 days, these inquiries must be explained and documentation is required if any of the inquiries resulted in a new credit account or line being opened.
The underwriter also wants to make sure that the first time borrower isn’t going through the mortgage lending process at the same time with another home. If the first time home buyer has to open a new line of a credit, it’s highly recommended to talk with the Loan Officer first. It is a possibility that opening a new line of credit, especially taking out a loan for personal purposes, can actually result in being denied for the home loan. More specifically, if the first time home buyer opens a new account that puts them over the debt-to-income ratio limit, they will no longer be eligible for that loan. It’s very important that any actions from the first time home buyer that may affect debt to income and also the credit score be discussed with the Loan Officer working with them on their first loan first.
For the next section, we’ll talk a bit about the Appraisal Report required for the Conventional loan program. There will be some differences compared to the USDA and FHA programs, so we will also outline those as well.